China Foreign Employers: Hard Times for Employee Terminations

It is fairly easy for China-based employees to leave their employment. Regardless of the circumstances surrounding an employee’s departure/termination, China employers must issue a proof of termination of employment relationship document to the departing employee. It is generally not possible for a China employer to hold the employee to specific performance by making the employee come back to work or continue working. Sometimes it is possible for the employer to pursue the departing employee for contract breach or other damages, but doing so rarely makes business sense. The reverse is NOT true though, as it is easy for a terminated employee to hold the employer to specific performance (i.e., reinstatement) and to sue for damages.

In other words, if you are a China-based employer, watch out! But I’m guessing all of you already knew that, but with quickly deteriorating relations between the United States and China and between Canada and China and between much/most of the EU and China, this warning has never been more important or urgent.

Consider this hypothetical (based on a real case in Shanghai with the facts simplified and slightly revised). Employer and Employee enter into an employment contract for a fixed term. Employee leaves before the end of the term. Employee demands Employer issue a proof of termination of employment relationship document. Employer provides the requested document but Employee claims Employer put in the wrong start date and so refuses to accept the document. Employee begins working for a new employer several days later. Employee then sues former Employer for damages allegedly caused by Employer’s failure to provide a proof of termination document. How will this case turn out for the parties?

The short answer is the employer will probably have to pay damages for having failed to timely provide its former employee with a proof of termination document. Employers generally must issue such a document when the employment contract is terminated and no later than 15 days after the termination. This document is important for China employees because China employers usually require this as part of their new employee on-boarding process, and without such a document, the employee will likely not be able to work for the new employer. China employees also need this document to claim unemployment benefits. Our China employment lawyers often see foreign employers in China get into trouble for failing to get this key document to their former employees or being late in doing so. We have had to settle far too many employee disputes arising from these mistakes.

Note though that in the above hypothetical the employer did provide its employee with the proof of termination document but it was rejected by the employee. In an employment dispute, the employer bears the burden of proving the employee’s commencement date. So when an employer is unable to produce evidence showing the employee’s commencement date is indeed correct on the rejected proof of termination document, the employer will have to bear the adverse consequences of failing to meet its burden of proof. In the actual case on which I based the hypothetical, the employer did not issue a proof of termination document until trial; nor was it able to produce evidence showing that it had issued a proof of termination document within 15 days after termination. The employer was therefore required to pay its former employee damages (calculated based on the local unemployment insurance payment standard) from the 16^th day after the employee left the job until the day the employee started her new job. All of this employer’s problems could have been avoided had it properly handled its task of providing this one  document to its employee at the time of employee separation.

As a foreign company that employees people in China, you should make sure your employee terminations are performed correctly. This has always been the bare minimum, but this is especially true today.

We will be discussing the practical aspects of Chinese law and how it impacts business there. We will be telling you what works and what does not and what you as a businessperson can do to use the law to your advantage. Our aim is to assist businesses already in China or planning to go into China, not to break new ground in legal theory or policy.